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Specialty chemicals manufacturer
LanxessLXS.xe -0.6804214223002634%Lanxess AGGermany: XetraEUR45.25
-0.31-0.6804214223002634%
/Date(1425425714000-0600)/
Volume (Delayed 15m)
:
430336
P/E Ratio
N/AMarket Cap
4169785158.18763
Dividend Yield
1.1049723756906078% Rev. per Employee
467970More quote details and news »LXS.xeinYour ValueYour ChangeShort position
has been unable to get the mix right in 2013, but it should rediscover its winning formula in the next 12 months.

The German company has endured a difficult start to the year, with notably weak demand in polymers, lower prices in general-purpose products, customers destocking in most markets, and scheduled one-off costs. But its prospects for the second half and beyond are much brighter.

LANXESS, WHICH HAS A STOCK-market value of €4.75 billion, can climb as high as €70—more than 20% above the current price—in 12 months, some analysts say. It could be worth even more, especially if it gets picked off in a round of consolidation by an ambitious player like Saudi Basic Industries (2010.Saudi Arabia). There's no suggestion that a predator is circling, however.

Its performance polymers unit, which includes rubber products, accounted for 57% of the company's €9.09 billion in 2012 revenue. Sales this year are expected to dip to €8.69 billion, as Lanxess' robust performances in Asia and in agrochemicals are checked by delayed tire replacement in developed markets, owing to sluggish economies, and the cost of setting up a state-of-the-art manufacturing plant in Singapore.

Lanxess is expanding heavily in Asia, where it aims to cash in on the rising demand for cars from an increasingly wealthy population. Capital expenditures peaked in 2012, and, to offset weaker demand and lower prices, Lanxess has trimmed its budget this year to €600 million from the €650 million to €700 million originally planned.

A slowdown in automotive markets in Europe, North America, and Latin America also has prompted Lanxess to idle a couple of plants as it tries to maintain a price-before-volume strategy, but this has squeezed working capital and weighed on profits.

Despite the measures that management has taken, performance in 2013 will fall short of last year's. Lanxess is expected to earn €3.34 per share this year, down from €6.53 in 2012. It will get back on track in 2014, when its major markets begin to rebound and capex falls further. The company is forecast to earn €6.01 a share next year, according to the consensus analysts' estimates compiled by FactSet.

Investors don't fully appreciate Lanxess' dominant position in supplying the tire industry with high-performance rubbers needed to produce more environmentally friendly products, says Alex Roepers, a value and activist investor who runs Atlantic Investment Management in New York. Roepers, who owns the stock, maintains that, with the new Singapore plant in place next year and tire-replacement demand normalizing, stronger earnings will resume in 2014. But he adds: "People are just not willing to buy ahead" of that. He reckons the stock could climb to €85 to €90 in a year.

But a deal looks unlikely and, after a 37% runup in the past year, there seems to be little upside in the stock's American depositary receipts (SMGZY), which were changing hands at midday Friday at $21.17. The indicative bid for the medical unit, reportedly two billion British pounds ($3.04 billion), is less than an offer Smiths got a couple of years ago.

The medical business, a cash generator with high margins, accounts for 28% of Smiths' sales, but 34% of operating profit. Smiths has shown already that it won't sell the unit on the cheap. So, speculation on what the company might do with the proceeds from a sale seems quite premature.